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Beyond Signaling and Human Capital: Education and the Revelation of Ability

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  • Peter Arcidiacono
  • Patrick Bayer
  • Aurel Hizmo

Abstract

We provide evidence that college graduation plays a direct role in revealing ability to the labor market. Using the NLSY79, our results suggest that ability is observed nearly perfectly for college graduates, but is revealed to the labor market more gradually for high school graduates. Consequently, from the beginning of their careers, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and returns to ability. (JEL D82, I21, I23, J24, J31)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 2 (2010)
Issue (Month): 4 (October)
Pages: 76-104

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Handle: RePEc:aea:aejapp:v:2:y:2010:i:4:p:76-104

Note: DOI: 10.1257/app.2.4.76
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  1. Fernando Galindo-Rueda, 2003. "Employer Learning and Schooling-Related Statistical Discrimination in Britain," CEE Discussion Papers 0031, Centre for the Economics of Education, LSE.
  2. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  3. Orley Ashenfelter & Alan Krueger, 1992. "Estimates of the Economic Return to Schooling from a New Sample of Twins," Working Papers 683, Princeton University, Department of Economics, Industrial Relations Section..
  4. Peter Arcidiacono & Patrick Bayer & Aurel Hizmo, 2008. "Beyond Signaling and Human Capital: Education and the Revelation of Ability," NBER Working Papers 13951, National Bureau of Economic Research, Inc.
  5. Derek Neal, 2004. "The Measured Black-White Wage Gap among Women Is Too Small," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S1-S28, February.
  6. David Bjerk, 2007. "The Differing Nature of Black-White Wage Inequality Across Occupational Sectors," Journal of Human Resources, University of Wisconsin Press, vol. 42(2).
  7. Bauer, Thomas & Haisken-DeNew, John P, 2000. "Employer Learning And The Returns To Schooling," CEPR Discussion Papers 2445, C.E.P.R. Discussion Papers.
  8. Lang, Kevin, 1994. "Does the Human-Capital/Educational-Sorting Debate Matter for Development Policy?," American Economic Review, American Economic Association, vol. 84(1), pages 353-58, March.
  9. Peter Arcidiacono, 2005. "Affirmative Action in Higher Education: How Do Admission and Financial Aid Rules Affect Future Earnings?," Econometrica, Econometric Society, vol. 73(5), pages 1477-1524, 09.
  10. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
  11. Hanming Fang, 2006. "Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1151-1185, November.
  12. Bishop, John H. & Mane, Ferran, 2001. "The impacts of minimum competency exam graduation requirements on high school graduation, college attendance and early labor market success," Labour Economics, Elsevier, vol. 8(2), pages 203-222, May.
  13. Julian R. Betts & Darlene Morell, 1999. "The Determinants of Undergraduate Grade Point Average: The Relative Importance of Family Background, High School Resources, and Peer Group Effects," Journal of Human Resources, University of Wisconsin Press, vol. 34(2), pages 268-293.
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